The fear among new-age traders, in the recent past, has been brewing about cryptocurrency being banned in India. However, in the latest announcement by the government, it was indicated otherwise as the government stated that there would be a new tax on cryptocurrency. Almost simultaneously, however, the Department of Finance came out with the news of the introduction of a ‘digital rupee’ within 2022.
Crypto is Legal, But with Crypto Tax
On 1 February 2022, the Finance Minister of India, Nirmala Sitharaman, stated the Indian government would levy a 30 percent tax of capital gains on every cryptocurrency trade made. Furthermore, the minister announced that the tax on cryptocurrency trading would be without deductions or exemptions allowed, barring the “acquisition cost”. The minister added that any loss as a result of fraud/theft arising from accounts that were hacked would not be covered either. Regarding the relationship between crypto and taxes, the outlook looks bleak for traders. Traders won’t be able to offset profits with losses. This new tax will apply to gifts of cryptocurrency also, and in addition to all this, any cryptocurrency transactions will attract a TDS (tax deducted at source) of 1 percent.
Hitting Hard at Cryptocurrency
The announcement made by the Finance Minister, as part and parcel of the 2022 Indian Budget presentation, was obviously greeted with a blend of reactions, most veering towards pessimism. Some eminent individuals, though, to name one, Nischal Shetty of one of India’s largest exchanges (a base of 7.3 million clients), WazirX, expressed some relief that the new rules on cryptocurrency taxes provided a semblance of positive clarity on crypto regulations in the future. Contrastingly, and perhaps voicing the view on behalf of many crypto fans, the former Secretary of Finance, Subhash Chandra made a comment to the effect of “the party” seeing its end.
India and Its History of Crypto
India has had a somewhat muddlesome cryptocurrency history. Additionally, it has been brief with the Finance Ministry comparing crypto to ‘Ponzi schemes’. Why? Because government officials stated that cryptocurrency had no standing and would prove risky to traders. In the same year, the Reserve Bank of India brought out rules that prohibited all banks from working with exchanges dealing in cryptocurrency. In 2020, this regulation was repealed by the Indian Supreme Court. Hence, there was an indication of the slow, but sure acceptance of cryptocurrency. Whether seen as negative or positive, the new crypto tax announcements have sealed cryptocurrency’s future in India, so to speak.
The Tax on Cryptocurrency Defined
So, how will cryptocurrency gains be taxed? The Indian government has clearly defined a term to do with crypto taxation, ‘virtual digital assets’. This is broadly meant to include any kind of asset related to crypto, like a few of the following:
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